NAIROBI, October 9 – The government has been urged to enact a National Pensions Policy that would encourage more people to save for retirement.,
Association of Retirement Benefits Schemes Chairman Lazarus Muema told Capital Business that the country needs a well regulated pensions industry which would encourage people to set aside up to two thirds of their income, which would then alleviate poverty at old age.
“By having a National Pensions Policy, you enlarge the net. There are a lot of people who are very productive at old age and thus the need to come up with a strategy that can help put some money into their pockets,” he said.
Mr Muema explained that the legislation would require the government to make it compulsory for people in both the formal and informal sectors to put aside a sizeable amount for their retirement.
It is estimated that for an employee to save up to two thirds of his income at retirement, they need to put away up to 15 percent of their income every month.
He disclosed that they were also advocating that the National Social Security Fund (NSSF) should be privatised and allowed to compete with other schemes across the country to enhance competition in the management of the funds.
“By having it well regulated through the government would ensure that it retains the oversight role in ensuring that the public good is taken care of but then bring in the efficiency of the private sector,” he added.
Mr Muema observed that although the Retirement Benefits Authority (RBA) had put in place a legislation that enables NSSF to extend its coverage beyond formal employment, the fund had failed to be all inclusive and the contributions have been very low and in some cases falling below one percent of an employee’s income.
“There is a shortcoming of state-run schemes where they tend to be managed on a less competitive platform and therefore they tend to under-deliver in terms of returns on investments,” he noted.
If implemented, the changes would have enormous benefits especially to the financial sector. The pension industry, Mr Muema stressed, is a good source of long term funds because money invested in the sector is not withdrawn on short notice.
“If we are going to develop the infrastructure or have big development projects, then we need a large pool of funds that is available locally because we cannot afford to depend on foreign aid all the time,” he emphasised.
He however warned that for the country to realize the full potential of an effective sector, the government need to give incentives such as tax breaks to draw more people to the schemes.